Uptown Clinic: Identify which costs you think are likely to be discretionary or committed costs.

There are several solutions I have found to the following questions, however they conflict somewhere, and two are from the same person and they conflict too. Please help!! Please provide guidance on all 3 questions and all aspects. Tank You!!! As much detail and reasoning as possible is appreciated, because at this point I cannot decipher what is right!!!

I have to answer the following:

Dr. Stephanie White, the Chief Administrator of Uptown Clinic, a community mental health agency, is concerned about the dilemma of coping with reduced budgets next year and into the foreseeable future, but increasing demand for services. In order to plan for reduced budgets, she must first identify where costs can be cut or reduced and still keep the agency functioning. Below are some data from the past year.

1. Identify which costs you think are likely to be discretionary or committed costs.

2. One possibility is to eliminate all discretionary costs. What do you think of this recommendation?

ELIMINATING ALL DISCRETIONARY COSTS WOULD
Reduce the costs by $60,000. However, I would not advice Dr. White to take such a mechanical step because some of the discretionary costs may be essential for the survival of the clinic. For, instance if the accounting and billing services were removed and there was no other staff that could prepare accounts, there could be serious difficulties for the clinic. Similarly, if the security expenses were arbitrarily removed, there could be burglaries in the clinic!

ADVISE TO DR. WHITE TO PREPARE REDUCED BUDGET
I would advice Dr. White to start on a systematic cost reduction. Even in case of committed costs like salaries, if there are idle hours for a staff and his work can be re allocated, then some salaried staff should be removed.
Possibly the services of one of the Social Workers can be terminated and their work reallocated to other staff.
The favorite area of cost reduction is that of discretionary costs. Here the cost reduction should be undertaken in a circumspect manner. That is professional meetings may be held in an alternate venue and its cost reduced, but not eliminated. Also, encouraging the staff to share transport and make economical use of the facilities should reduce the transportation cost . Advertising and promotion costs may be reduced but there is a risk that its reduction may lead to a fall in the number of patients attending the clinic. Consulting fees needs to be examined in detail to ascertain the nature of the fees and its import to the clinic.

Please note the gaps in the question. First, we do not know the functioning of the clinic, so we cannot decide on the relative importance of the costs. Second, we do not know the details of the costs, for example we can advise that consulting costs be eliminated, but this activity may be quintessential for the survival of the clinic. Third, the question does not mention the function of each of the staff. Without knowing their function it is difficult to advise their removal. Fourth, the question does not clarify the paradox; there is increasing demand for services, yet there is reduction in budget. Usually, with increasing demand there is increased budget!

Solution Possibility #2

Dr. Stephanie White, the Chief Administrator of Uptown Clinic, a community mental health agency, is concerned about the dilemma of coping with reduced budgets next year and into the foreseeable future, but increasing demand for services. In order to plan for reduced budgets, she must first identify where costs can be cut or reduced and still keep the agency functioning. Below are some data from the past year.

1. Identify which costs you think are likely to be discretionary or committed costs. The costs can be separated based on these definition.

2. One possibility is to eliminate all discretionary costs. What do you think of this recommendation? I would not recommend eliminating discretionary costs because of long term effects. I would suggest reduction for example hire one secretary instead of two. Hire an assistant that can double as a bookkeeper to reduce the cost for accounting and billing. Total elimination is not feasible due to the fact that some of these costs such as advertising and promotion are crucial to the success of this agency. Discretionary cost present unique problems in cost management because managers must determine whether the level of the discretionary activity is appropriate.

3. How would you advise Dr. White to prepare for reduced budgets? I would advise Dr. White to come up with a plan to first reduce the discretionary cost not eliminate. Next analyze the committed cost and if possible start adjusting them now. Possible adjustments of these costs would be to meet with the security team and start plans for a revised contract, suggest cut in pay for administration and new business hours to offset the cut. Reduce the Outpatient mental health treatment salaries by cutting hours.

2. You cannot eliminate ALL discretionary costs but you can control them, there is no way to fully eliminate all these costs.

3. I would advise him to reduce expenses on supplies, use on secretary instead of two, reduce the adverstising and promotions. There is no way to fully eliminate these costs but reducing disrectionary costs is the solution.

Advertising and promotion, Professional meetings/dues, Community Mental Health Services: Psychiatrist and Two Social Workers, Transportation. Other costs are mainly committed costs

2) I would not totally eliminate all discretionary costs but would surely cut the cost in this area, for example i would use one social worker instead of two, same thing with secretaries, I would also reduce the professional meeting, promitions, transportation costs.

3) I would advise him to discuss his budget cuts with the employees and try to explain to them that the survival of the company is dependent upon these cuts.

Solution Preview

THE AREAS WHERE THERE IS NO DISAGREEMENT
One should not eliminate all discretionary costs.
Reduction of the cost of professional meetings.
Reduction of the cost of transportation.
Partial Reduction of committed costs.

In those areas where there is no apparent conflict you may accept the general opinion. However, in the other case where there are obvious conflicts we need to take a second look at the points of conflict.

THE POINTS OF CONFLICT ARE
Transportation $10,000 (usually under contract.
The transportation cost depends on whether this is really under contract. If it is under contract, then it is a committed cost. However, in this case we find that there is no indication ...

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"The transportation cost depends on whether this is really under contract. If it is under contract, then it is a committed cost. However, in this case we find that there is no..."